- 26 -
corporation actually complied with the section 263A
capitalization requirement. As we have held, Pelaez and Sons,
Inc., was not entitled to deduct the 1989, 1990, and 1991 costs
on its 1991 return.
There is no doubt that the question of whether to capitalize
or deduct the preproduction costs is, in the setting of this
case, a timing question and not a one-time inclusion or
deduction. Our holding that Pelaez and Sons, Inc., must
capitalize rather than deduct such costs beginning with 1992
involves a “material item” so as to constitute a change in the
accounting method that would trigger section 481. Accordingly,
within the established definition for change in the accounting
method, Pelaez and Sons, Inc., as a result of being required to
capitalize the preproduction costs beginning in 1992, has changed
its accounting method for the deduction of a material item. Such
a change warrants respondent’s use of section 481 to make the
adjustment necessary to prevent a distortion of income.
To reflect the foregoing,
Decision will be entered
for respondent.
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Last modified: May 25, 2011